Relations have improved between the UK’s business community and its government. But there is still much more the latter should be doing to help companies in Britain and the rest of Europe prepare for life after Brexit.
Last Friday’s meeting at the foreign secretary’s official residence in Chevening of senior business representatives, ministers and civil servants highlighted this. While attendees spoke of a constructive atmosphere at the talks, and of a growing sense of collaboration, there was still disappointment about the government’s failure to engage with companies’ most pressing practical concerns.
To government, the corporate desire to address the nitty-gritty details of the UK’s exit from the EU must seem mundane. For ministers like Dexeu secretary David Davis, who hosted Friday’s meeting, the main issues remain the high-level ones.
What bill will Britain pay on leaving the EU? What kind of trade agreement should the UK ask for? Given there is so little agreement at the top of government on these, it is unsurprising that ministers remain pretty casual about the real-life challenges that companies face as they contemplate a UK trading outside the EU.
At Chevening, the likes of JPMorgan, GE, Allianz and BT tried to redress the balance.
Although much public debate focuses on what tariffs will be applied to UK imports and exports post-Brexit, this is not the biggest issue.
Many companies are worried less about the cost of crossing borders than the difficulty of doing so. Modern cars, for example, are made up of thousands of components that travel across multiple borders before completion. For many industrial companies, adding required documentation at borders will disrupt their “just in time” manufacturing processes.
Big retailers or distillers such as Diageo, also at Chevening, import thousands of products from the rest of the EU without the need to fill in a customs declaration. After Brexit, if EU imports must be declared, HMRC estimates the number of these forms will rise from 55m to a mind-boggling 255m a year.
Even under WTO rules, companies will face burdensome new requirements to provide proof of the origin of products in their supply chains in order to qualify for preferential EU tariffs. Many simply do not have the data or the capacity to do so, especially when their supply chains are international. Some are even considering not trying, even if this means paying higher tariffs as a result.
Companies have limited options for mitigating these effects. They do not know what the post-Brexit trade regime will look like. But there are some things they can do to prepare, whatever the outcome of negotiations. “Trusted trader” status, which all EU companies can apply for, makes life easier by reducing document checks and physical inspections and guaranteeing faster clearance at customs. Companies earn this “authorised economic operator” status by meeting certain standards for record keeping and financial solvency. Companies aware of the scheme are scrambling to register before Brexit.
But there is more that the UK government should be doing. For a start, not enough companies are aware of the programme. About 600 UK companies are AEOs, compared to 10 times the number in Germany. The UK government should be spreading the word, as well as setting up its own accreditation process.
Brexit would allow the UK to adopt a simpler scheme than the EU’s current version, as countries like Australia have done. At present companies must fill in a 17-page questionnaire (sample question: “does your accounting (logistic) system facilitate a full audit trail of your customs activities or tax relevant movement of goods or accounting entries?”) and an application form.
The government should also ensure European companies understand whether they need to apply for UK AEO status. It should also make the process easier for smaller companies, perhaps by allowing local Chambers of Commerce to act as guarantors or even introducing self-assessment.
Finally, HMRC, which approves a company’s AEO compliance, needs the resources to process applications as quickly as possible. Advisers like EY say that getting AEO status, which used to take six months from start to finish before the referendum, has now risen to 12 months. March 2019 is only a year and a half away. This is a practical way government could help business prepare.